Bilateral Relations Between Kosovo and Serbia Regarding the Energy Sector
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Research Institute of Development and European Affairs BILATERAL RELATIONS BETWEEN KOSOVO AND SERBIA REGARDING THE ENERGY SECTOR October 2019 Supported by: Mother Teresa Square, Entrance I · 59 A · No. 10 Prishtinë, 10000 Republic of Kosovo T/F: +383 38 746 206 E-mail: [email protected] Website: www.ridea-ks.org BACKGROUND NOTE/STUDY ON: BILATERAL RELATIONS BETWEEN KOSOVO AND SERBIA REGARDING THE ENERGY SECTOR October 2019 BACKGROUND NOTE/STUDY ON: BILATERAL RELATIONS BETWEEN KOSOVO AND SERBIA REGARDING THE ENERGY SECTOR This study is supported by: Disclaimer: The views and analysis in this report are solely of the RIDEA and do not reflect the views of the donor. Author: Research Institute of Development and European Affairs (RIDEA) October 2019 Contents Abbreviations .......................................................................................................................................................... i Introduction .......................................................................................................................................................... 1 The Energy Community Treaty and the Dispute Regarding Energy between KOSTT and EMS ................................................................................................................................................................... 2 The Brussels Dialogue and the Dispute Regarding Energy between KOSTT and EMS 14 KOSTT’s Financial Losses Resulting from the Non-Payment of Electricity Bills in the North of Kosovo ................................................................................................................................................ 20 Collateral damage resulting from Serbia’s Breach of the EnCT .............................................. 22 Conclusions ......................................................................................................................................................... 24 Recommendations .......................................................................................................................................... 28 Abbreviations CERG Continental Europe Regional Group CGES Transmission System Operator, Montenegro EC European Commission EIC Energy Identification Code EMS Elektromreza Serbije (Serbian Transmission System Operator) EnC Energy Community EnCAC Energy Community Advisory Council EnCS Energy Community Secretariat EnCT Energy Community Treaty ENTSO-E European Network of Transmission Operators EPS Elektroprivreda Serbia (Electric Power Utility of Serbia) ERO Energy Regulatory Office, Kosovo EU European Union ITC Inter Transmission System Operation Compensation KEDS Kosovo Electricity Distribution and Supply KEK Kosovo Energy Corporation KOSTT Kosovo Transmission System and Market Operator MC-EnC Ministerial Council of Energy Community MEPSO Electricity Transmission and Power System Management, Montenegro OST Transmission System Operator, Albania SAA Stabilisation & Association Agreement i TSO Transmission System Operator UN United Nations UNMIK United Nations Mission in Kosovo UTCE Union for the Coordination of Transmission of Electricity ii Introduction 1. In this background note/study, the aim is to critically analyse the bilateral relations between the Republic of Kosovo (henceforth Kosovo) and Serbia regarding energy within both the Energy Community Treaty and the Brussels Dialogue, and based on that to draw policy recommendations. 2. The objectives of this background note/study include: i) Critically review the historic facts about the bilateral relations between Kosovo and Serbia regarding energy; ii) Critically review the implementation, or lack thereof of agreements achieved between Kosovo and Serbia regarding energy within the Energy Community Treaty ; iii) Critically review the implementation, or lack thereof of agreements achieved between Kosovo and Serbia regarding energy within the Brussels Dialogue; iv) Estimate the monetary losses and the lost revenues of Kosovo resulting from Serbia’s violation of the different agreements relating to energy reached with Kosovo; and v) Propose relevant policy recommendations. The structure of this background note/study is based on the structure of the objectives specified above. 1 The Energy Community Treaty and the Dispute Regarding Energy between KOSTT and EMS 1. Bilateral energy relations, including electricity in transit, between KOSTT and EMS were established in 2000 and were governed by the 2000 Temporary Energy Exchange Agreement1 and the 2001 Temporary Technical Arrangement.2 These two agreements were signed between the Public Utilities Department of UNMIK on behalf of KOSTT (back then, before the unbundling process, Power Company of Kosovo) and the Ministry of Energy and Mining of Serbia on behalf of EMS (back then, before the unbundling process, Electric Power Industry of Serbia). As per the 2011 Reasoned Opinion of the EnCS, although not respected, the two agreements are legally binding on both KOSTT and EMS, given that (i) they were signed by their respective Contracting Parties and (ii) they have never been terminated. As per Item 1.4.2 of the 2000 Temporary Energy Exchange Agreement "the party for whom the electricity transit is performed shall reimburse the transit costs of the other party, in kind or on a financial basis".34 2. In 2004, as per Article 3 of Regulation 1228/2003, several multilateral ITC agreements were signed aiming at establishing a mechanism for managing the compensation for electricity transit costs.5 Following the entry into force of these ITC Agreements, in 2004 EMS - a signatory to these agreements - stopped compensating KOSTT for the costs incurred (relating to losses or infrastructure) resulting from electricity in transit through the Kosovo grid originating in and 1UNMIK (2000), ‘Temporary Energy Exchange Agreement. In the Reasoned Request of the Energy Community Ministerial Council.’ Available at: https://www.energy-community.org/legal/cases/2008/case0308RS.html [Accessed on: September 6, 2019]. 2 UNMIK (2001), Temporary Technical Arrangement. In the Reasoned Request of the Energy Community Ministerial Council’. Available at: https://www.energy-community.org/legal/cases/2008/case0308RS.html [Accessed on: September 6, 2019]. 3 Compensation in kind is to be computed and paid in accordance with EKC by-laws. 4 Energy Community Secretariat (2011), ‘Reasoned Opinion on Case ECS 03/08, dated 7 October 2011’. Available at: https://www.energy-community.org/legal/cases/2008/case0308RS.html [Accessed on: September 6, 2019]. 5European Parliament (2009), ‘EP Regulation No 1288/2003’. Available at: https://www.ceer.eu/documents/104400/-/-/70c72407-a9ce-4b4e-1eec-164225c8dd06 [Accessed on: September 6, 2019]. 2 ending on the EMS network. Accordingly, EMS ceased to transfer to KOSTT the revenues received from allocating transmission capacity on the three interconnectors of Contracting Parties adjacent to the network operated by KOSTT, namely Albania, North Macedonia and Montenegro. In March 2011, another ITC agreement was signed between ENTSO-E and 39 TSOs, including EMS but, excluding KOSTT. As per this ITC Agreement, “EMS is listed as both ITC party and Country/Control Block for Serbia”, without any special reference to the territory of Kosovo”.6 Further, as per Regulation (EU) No 838/2010, TSOs operating on the territories of the Energy Community Law are entitled to participate in the ITC mechanism. Accordingly, KOSTT, which operates as a TSO on the territory of Kosovo, is entitled to participate in the ITC mechanism and to be compensated for electricity transit.7 3. According to the Kosovo government, Serbia’s violation of the agreements has caused a financial damage of ca. 15 million Euros annually to the Kosovan TSO.8 This gives a total financial damage - total financial debt that the Serbian TSO owes to the Kosovan TSO - of ca. 225 million Euros for the period 2004-2019. 4. In 2006, UNMIK on behalf of Kosovo signed the Energy Community Treaty (henceforth EnCT).9 Accordingly, Kosovo is a member of EnCT since 2006. 6 Energy Community Secretariat (2011), ‘Reasoned Opinion on Case ECS 03/08, dated 7 October 2011’ Points 17 and 18. Available at: https://www.energy-community.org/legal/cases/2008/case0308RS.html [Accessed on: September 6, 2019]. 7European Commission (2010), ‘Regulation (EU) No 838/2010’. Available at: https://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:250:0005:0011:EN:PDF [Accessed on: September 6, 2019]. 8 Ministry of Energy and Mining (2009), ‘Kosovo Energy Strategy 2009-2018’. Available at: http://www.mei- ks.net/repository/docs/ANNEX_12_-_Kosovo_Energy_Strategy_2009-2018.pdf [Accessed on: September 6, 2019]. 9Starting in 2019, Kosovo will have a reporting obligation pursuant to Annex VIII.B of the Large Combustion Plan Directive 2001/80/EC as amended by Decision 2013/05/MC-EnC. 3 UNMIK as a Contracting Party to the EnCT designated KOSTT as the only TSO on the territory of KOSOVO in accordance with Article 8 of Directive 2003/54/EC.1011 5. As per Item 1.3 of the 2001 Temporary Technical Arrangement, KOSTT assumed the obligation “to remunerate EMS for the provision of its services, including procurement of secondary regulation by KOSTT from the Serbian utility Elektroprivreda Serbia (EPS)”.12 In April 2007, KOSTT ceased to remunerate EPS for such services. 6. On 6 August 2008 – failing to resolve the energy dispute through bilateral negotiations and negotiations with the support of ETSO and the European Commission - KOSTT filed